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Delta Air, Pilots in Pension Deal

Delta Air Lines (DAL - Get Report) may have solved a crisis related to the early retirement of pilots, but winning $1 billion in wage concessions won't necessarily be so easy.

The struggling airline and its pilots union late Monday reached a tentative agreement on early retirement that allows the airline to recall pilots to ensure operations are not disrupted. With Delta warning it may have to file for Chapter 11 bankruptcy protection, senior pilots who fly the largest aircraft have been leaving, opting for a hefty lump-sum payment.

Under the tentative agreement, Delta's pilots will let the carrier recall retired pilots in exchange for pension plan protection, specifically that Delta management won't try to terminate the pilots' pension plan before Feb. 1, 2005, even if it has already filed for Chapter 11.

In reaction to the settlement, shares of Delta -- which opened the day just 50 cents from a 52-week low -- were up 31 cents, or 8.1%, to $4.12 in premarket action.

The agreement, which must be ratified by the rank and file, comes at a critical juncture for Delta. Two weeks ago, CEO Gerald Grinstein warned the carrier would be forced into bankruptcy court if it did not reach an agreement with pilots on early retirement by the end of September.

Roughly 2,000 of the airlines 7,000 pilots qualify for the early retirement plan, which lets pilots leave at 50 years old, instead of 60, the mandatory retirement age. With so many pilots eligible for retirement, Delta was concerned that its ability to fly the larger and more lucrative Boeing 777s would be compromised at a critical juncture for the airline.

But the early retirement issue, while pressing, is almost a side issue in Delta's road to recovery. The airline's restructuring plan, Delta Solution, is seeking $1 billion in wage concessions from pilots en route to cutting costs by $2.7 billion by 2006. Two months ago, the union put a $700 million package on the table, but with oil prices high and revenue weak, time is running out for Delta.

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